Going After Global Limo Go-Zones

Posted on December 18, 2014 by By Martin Romjue & Tim Crowley

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Dubai and Abu Dhabi have turned up the notch for corporate business and the banking sector. Our service levels in Dubai have increased with the growth and development of hotels and businesses. Abu Dhabi will be the next Dubai. — Nadeem Ajaib, CEO of Icona Global
Dubai and Abu Dhabi have turned up the notch for corporate business and the banking sector. Our service levels in Dubai have increased with the growth and development of hotels and businesses. Abu Dhabi will be the next Dubai. — Nadeem Ajaib, CEO of Icona Global
Emerging chauffeured markets in nations without established chauffeured transportation industries carry two benefits: 1) They open up opportunities for U.S. operations willing to do the legwork and research to set up affiliates; 2) As those emerging economies prosper, businesspeople travel abroad, generating more frequent farm-in work for U.S. operations.

With the effects of the global recession mostly receded, global economic activity is expected to accelerate 3.9% in 2015 compared to 3.6% in 2014, according to the International Monetary Fund. Meanwhile, the Global Business Travel Association projects U.S. international outbound spending, which fell 0.8% in 2012 and 1.8% in 2013, appears to have “bottomed,” and headed up along the curve of a cyclical trough. The GBTA report suggests the recovery is tied to economic stabilization in the European Union, and forecasts a 7.1% increase in international outbound volume for 2014.

However, the ground transportation industry is awash in inventory amid high competition — the perfect storm for what GBTA forecasts as a flat year for pricing just about everywhere except Latin America (2% hikes are seen). Expect much of the same with car rentals.

As part of the annual international issue, LCT provides anecdotal glimpses of chauffeured trends from operators in various global markets:

The Global Business Travel Association projects China’s total business travel spending to grow 15.9% in 2014 to $262 billion and another 18% in 2015. After a few years of tepid growth, China’s international outbound (IOB) travel is beginning to improve. GBTA expects IOB spending in China to grow 16% in 2014 and an additional 19% in 2015 to $13.4 billion. Global business travel spend is expected to reach a record $1.18 trillion in 2014, with nearly 40% coming from Asia Pacific. As previously forecasted, China is expected to overtake the U.S. as the No. 1 business travel market in the world. Given projected growth in business travel in the two markets, China likely will surpass the U.S. in spending by 2016.
Henry Yao of Beijing Limo.
Henry Yao of Beijing Limo.
For the chauffeured outlook, LCT checked in with Henry Yao, CEO of Beijing Limo, and Roger Ge, co-chairman of the Chinese International Car Rental Exchange & Association and general manager of RongYi Information Technology Inc.
Exact chauffeured vehicle numbers for China are unavailable because limousines are listed with taxis, and China so far does not have a limousine trade group that can compile and provide reliable statistics. Overall, the Chinese market divides 70% business/corporate versus 30% leisure.

The chauffeured market spans several key niches, including professional companies that provide chauffeured services, private chauffeured services, hotels with chauffeured services, and chauffeured alliances in certain areas, Geng says. “During the last five years, our service has become more professional and some drivers can even speak English. We also have more standard prices.”

Yao and Ge both said chauffeured service has not yet penetrated the Chinese middle class.
“Traditionally, the middle class here rarely uses limousine service except for weddings,” Yao says. “They use taxi a lot for airport transfers. Prom is not a tradition here so there’s no demand. However, apps similar to Uber appeared last year and are getting popular among white collar [clientele].”

Yao reports that chauffeurs better understand client expectations, and as a result, service quality has improved. But the industry still experiences growing pains, with potential to raise standards, he says. Geng says U.S. limousine companies can help Chinese ones by sharing their service methods and standards, so operators can enhance their professionalism.
For vehicles, an extended wheelbase version of the Audi A6L has gained in popularity, as it is the first luxury sedan made in China and only available there.

As part of the widely reported crackdown on corruption by the Chinese government, most government officials and executives at state-owned enterprises will lose their government-issued vehicles, since the vehicles are driven for legitimate business only one-third of the time, Yao says. That means most vehicles are used for private purposes at taxpayer expense. To reduce costs, the government plans to instead subsidize taxi and chauffeured sedan services for government officials, which already is benefitting the limousine industry, he says.

U.S. companies that want set up affiliates in China should get referrals from companies that have longstanding relationships with their partners there. Foreign limo and taxi companies are forbidden from setting up local operations in major Chinese cities, but car rental companies owned by non-Chinese firms are allowed.
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